**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





(MARK
      ONE)


x           QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007


*OR*


o           TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE TRANSITION PERIOD FROM __________ TO __________





COMMISSION
      FILE NUMBER:  1-13861





**MED-EMERG
      INTERNATIONAL INC.**


(Exact
      Name of Registrant as Specified in Its Charter)





PROVINCE
                  OF ONTARIO, CANADA
              N/A(State
                  or Other Jurisdiction of Incorporation or Organization)
              (IRS
                  Employment Identification No.)


6711
                Mississauga Road, Suite 404Mississauga,
                Ontario, Canada
            
            L5N
                2W3(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





(905)
      858-1368


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant:  (1) has filed all reports
      required to be filed by Section 13 or 15(d) of the Securities Exchange Act
      of
      1934 during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such
      filing requirements for the past 90 days.  Yes [X]   No
      [   ]





Indicate
      by check mark whether registrant is a large accelerated filer, an accelerated
      filer, or a non-accelerated filer. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one)





Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-Accelerated
                Filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).


Yes o
      No x





As
      of
      August 13, 2007, 58,277,696 of the registrant’s common shares were outstanding.
      The aggregate market value of the shares of the issuer's common stock held
      by
      non-affiliates was approximately $3.8 million based on the last reported sale
      price of $0.15 per share on August 13, 2007 as quoted on the OTC Bulletin
      Board.

























1











**MED-EMERG
      INTERNATIONAL
      INC.**





TABLE
      OF CONTENTS





TABLE
                OF CONTENTS
            2PART
                I:  FINANCIAL INFORMATION
            3ITEM
                1.  CONDENSED FINANCIAL STATEMENTS
            3ITEM
                2:
                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            19ITEM
                3:
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            31ITEM
                4:
                CONTROLS AND PROCEDURES
            31PART
                II:  OTHER INFORMATION
            32ITEM
                1A.  RISK FACTORS
            32ITEM
                6.
                EXHIBITS
            32SIGNATURES
            33











2





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
      Quarterly Report on Form 10-Q contains forward-looking statements as defined
      by
      the Private Securities Litigation Reform Act of 1995. Forward-looking statements
      include statements concerning plans, objectives, goals, strategies, future
      events or performance and underlying assumptions and other statements, which
      are
      other than statements of historical facts. These statements are subject to
      uncertainties and risks including, but not limited to, product and service
      demand and acceptance, changes in technology, economic conditions, the impact
      of
      competition and pricing, government regulation, and other risks described in
      this document and in other reports filed from time to time with the Securities
      and Exchange Commission. All such forward-looking statements are expressly
      qualified by these cautionary statements and any other cautionary statements
      that may accompany the forward-looking statements. In addition, Med Emerg
      International Inc. disclaims any obligations to update any forward-looking
      statements to reflect events or circumstances after the date
      hereof.





**PART
      I:  FINANCIAL INFORMATION**





ITEM
      1.  CONDENSED FINANCIAL STATEMENTS











3





**Med-Emerg
      International Inc.**


**Consolidated
      Balance Sheets**


**As
      at June 30, 2007 and December 31, 2006**


**(in
      US$)**





**June
                30**
            
            
            **December
                31****2007**
            
            
            **2006****Assets**
            
            **(Unaudited)****Current
                assets**Cash
            
            $
            2,760,733
            
            
            $
            4,028,128Accounts
                receivable
            
            
            3,176,003
            
            
            
            2,497,610Prepaid
                expenses and other
            
            
            326,677
            
            
            
            76,045Discontinued
                operations (Note 4)
            
            
            529
            
            
            
            463,8706,263,942
            
            
            
            7,065,653Property,
                plant and equipment
            
            
            1,216,517
            
            
            
            597,543Goodwill
                and other intangible assets
            
            
            237,596
            
            
            
            237,596Deferred
                clinic set-up costs
            
            
            89,999
            
            
            
            -$
            7,808,054
            
            
            $
            7,900,792**LIABILITIES
                AND SHAREHOLDERS' EQUITY****Current
                liabilities**Accounts
                payable and accrued liabilities
            
            $
            2,720,597
            
            
            $
            2,273,061Discontinued
                operations (Note 4)
            
            
            645,381
            
            
            
            880,3733,365,978
            
            
            
            3,153,434**Long-term
                liabilities**Notes
                payable
            
            
            377,585
            
            
            
            453,369Discontinued
                operations (Note 4)
            
            
            138,315
            
            
            
            280,873Redeemable,
                convertible Series I Special shares (Note 6a)
            
            
            2,883,892
            
            
            
            2,589,1593,399,792
            
            
            
            3,323,4016,765,770
            
            
            
            6,476,835Contingent
                liabilities (Note 10)**SHAREHOLDERS'
                EQUITY**Capital
                stock (Note 6)
            
            
            16,420,668
            
            
            
            16,420,668Contributed
                surplus (Note 7)
            
            
            3,106,792
            
            
            
            3,106,792Deficit
            
            
            (17,717,430
            )
            
            
            (17,253,951
            )Cumulative
                translation adjustment
            
            
            (767,746
            )
            
            
            (849,552
            )1,042,284
            
            
            
            1,423,957$
            7,808,054
            
            
            $
            7,900,792





The
      accompanying notes are an integral part of these consolidated financial
      statements.


























4








**Med-Emerg
      International Inc.**


**Consolidated
      Statements of Deficit**


**For
      the three and six months ended June 30, 2007 and June 30,2006
      (Unaudited)**


**(in
      US$)**








**THREE
                MONTHS ENDED**
            
            
            **SIX
                MONTHS ENDED****June
                30**
            
            
            **June
                30**
            
            
            **June
                30**
            
            
            **June
                30****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Balance,
                beginning of period, as previously reported
            
            $
            (17,524,205
            )
            
            $
            (18,008,822
            )
            
            $
            (17,253,951
            )
            
            $
            (18,077,662
            )Financial
                instruments - recognition and measurement (Note 3a)
            
            
            -
            
            
            
            -
            
            
            
            16,972
            
            
            
            -Balance,
                beginning of period
            
            
            (17,524,205
            )
            
            
            (18,008,822
            )
            
            
            (17,236,979
            )
            
            
            (18,077,662
            )Income
                (loss) attributable to common shareholders
            
            
            (193,225
            )
            
            
            692,565
            
            
            
            (480,451
            )
            
            
            761,405Balance,
                end of period
            
            $
            (17,717,430
            )
            
            $
            (17,316,257
            )
            
            $
            (17,717,430
            )
            
            $
            (17,316,257
            )







**Med-Emerg
      International Inc.**


**Consolidated
      Statements of Comprehensive Income (Loss) and Other Comprehensive
      Loss**


**For
      the three and six months ended June 30, 2007 and June 30, 2006
      (Unaudited)**


**(in
      US$)**


**THREE
                    MONTHS ENDED**
                
                
                **SIX
                    MONTHS ENDED****June
                    30**
                
                
                **June
                    30**
                
                
                **June
                    30**
                
                
                **June
                    30****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Net
                    income (loss) attributable to common shareholders
                
                $
                (193,225
                )
                
                $
                692,565
                
                
                $
                (480,451
                )
                
                $
                761,405Other
                    comprehensive incomeChange
                    in cumulative translation adjustment
                
                
                74,781
                
                
                
                28,470
                
                
                
                81,806
                
                
                
                25,225Comprehensive
                    income (loss) for the period, attributable to common
                    shareholders
                
                $
                (118,444
                )
                
                $
                721,035
                
                
                $
                (398,645
                )
                
                $
                786,630Accumulated
                    other comprehensive loss, beginning of period
                
                $
                (842,527
                )
                
                $
                (796,132
                )
                
                $
                (849,552
                )
                
                $
                (792,887
                )Other
                    comprehensive income
                
                
                74,781
                
                
                
                28,470
                
                
                
                81,806
                
                
                
                25,225Accumulated
                    other comprehensive loss, end of period
                
                $
                (767,746
                )
                
                $
                (767,662
                )
                
                $
                (767,746
                )
                
                $
                (767,662
                )


The
      accompanying notes are an integral part of these consolidated financial
      statements.









5











**Med-Emerg
      International Inc.**


**Consolidated
      Statement of Operations** **Three
      months and six months ended June 30, 2007 and 2006
      (Unaudited)**


**(in
      US$)**





**THREE
                  MONTHS ENDED**
              
              
              **SIX
                  MONTHS ENDED**June
                  30
              
              
              June
                  30
              
              
              June
                  30
              
              
              June
                  302007
              
              
              2006
              
              
              2007
              
              
              2006(restated)
              
              
              
              
              
              (restated)**Revenue**
              
              $
              5,352,286
              
              
              $
              4,757,232
              
              
              $
              10,423,436
              
              
              $
              9,040,702**Physician
                  fees and other direct costs**
              
              
              3,695,740
              
              
              
              3,357,813
              
              
              
              7,377,820
              
              
              $
              6,466,5331,656,546
              
              
              
              1,399,419
              
              
              
              3,045,616
              
              
              
              2,574,169**Expenses**Salaries
                  and
                  benefits
              
              
              981,261
              
              
              
              738,648
              
              
              
              1,840,105
              
              
              $
              1,411,715General
                  and administration
              
              
              402,778
              
              
              
              275,872
              
              
              
              879,938
              
              
              $
              506,458Occupancy
                  costs
                  and supplies
              
              
              188,318
              
              
              
              100,091
              
              
              
              335,298
              
              
              $
              219,559Travel
                  and marketing
              
              
              126,816
              
              
              
              74,911
              
              
              
              183,010
              
              
              $
              120,7671,699,173
              
              
              
              1,189,522
              
              
              
              3,238,351
              
              
              
              2,258,499**Income
                  (loss) before undernoted items**
              
              
              (42,627
              )
              
              
              209,897
              
              
              
              (192,735
              )
              
              
              315,670Interest
                  income, net of bank charges
              
              
              (46,057
              )
              
              
              (6,813
              )
              
              
              (53,390
              )
              
              
              -Interest
                  on
                  long-term debt
              
              
              39,883
              
              
              
              14,449
              
              
              
              68,980
              
              
              
              14,449Amortization
                  of
                  property, plant, and equipment
              
              
              88,124
              
              
              
              46,628
              
              
              
              141,823
              
              
              
              86,934Interest
                  expense on financial liability carried at amortised cost
              
              
              4,279
              
              
              
              -
              
              
              
              9,036
              
              
              
              -Stock
                  compensation expense
              
              
              -
              
              
              
              10,456
              
              
              
              -
              
              
              
              88,85986,229
              
              
              
              64,720
              
              
              
              166,449
              
              
              
              190,242**Income
                  (loss) before discontinued operations**
              
              
              (128,856
              )
              
              
              145,177
              
              
              
              (359,184
              )
              
              
              125,428**Discontinued
                  operations**Loss
                  from discontinued operations (note 4)
              
              
              (64,369
              )
              
              
              (100,842
              )
              
              
              (121,267
              )
              
              
              (12,253
              )Income
                  taxes recovery
              
              
              -
              
              
              
              648,230
              
              
              
              -
              
              
              
              648,230Net
                  income (loss) from discontinued operations
              
              
              (64,369
              )
              
              
              547,388
              
              
              
              (121,267
              )
              
              
              635,977**Net
                  income/(loss) attributable to common shareholders**
              
              $
              (193,225
              )
              
              $
              692,565
              
              
              $
              (480,451
              )
              
              $
              761,405**Income
                  (loss) per common share, basic and fully diluted**Continuing
                  operations
              
              $
              (0.00
              )
              
              $
              0.00
              
              
              $
              (0.01
              )
              
              $
              0.00Discontinued
                  operations
              
              $
              (0.00
              )
              
              $
              0.01
              
              
              $
              (0.00
              )
              
              $
              0.01$
              (0.00
              )
              
              $
              0.01
              
              
              $
              (0.01
              )
              
              $
              0.01**Weighted
                  average common shares and share equivalents,
                  diluted**
              
              
              58,277,696
              
              
              
              58,277,696
              
              
              
              58,277,696
              
              
              
              58,277,696





The
      accompanying notes are an integral part of these consolidated financial
      statements.

















6








**Med-Emerg
      International Inc.**


**Consolidated
      Statements of Cash Flows**


**Three
      and six months ended June 30, 2007 and 2006 (Unaudited)**


**(in
      US$)**





**THREE
                  MONTHS ENDED**
              
              
              **SIX
                  MONTHS ENDED**June
                  30
              
              
              June
                  30
              
              
              June
                  30
              
              
              June
                  302007
              
              
              2006
              
              
              2007
              
              
              2006(restated)
              
              
              
              
              
              (restated)**Cash
                  Flows from Operating Activities**Net
                  income/(loss) before discontinued operations
              
              $
              (128,856
              )
              
              
              145,177
              
              
              $
              (359,184
              )
              
              $
              125,428Adjustments
                  for:Amortization
                  of
                  property, plant and equipment
              
              
              88,124
              
              
              
              46,628
              
              
              
              141,823
              
              
              
              86,934Interest
                  expense on financial liability carried at amortized cost
              
              
              4,279
              
              
              
              -
              
              
              
              9,036
              
              
              
              -Stock
                  compensation expense
              
              
              -
              
              
              
              10,456
              
              
              
              -
              
              
              
              88,859Accretion
                  of
                  expense on Series I Shares
              
              
              23,854
              
              
              
              -
              
              
              
              47,956
              
              
              
              -(12,599
              )
              
              
              202,261
              
              
              
              (160,369
              )
              
              
              301,221Decrease
                  in
                  non-cash working capital components
              
              
              (127,092
              )
              
              
              (321,757
              )
              
              
              (481,489
              )
              
              
              (382,576
              )Recovery
                  of
                  income taxes
              
              
              -
              
              
              
              (648,230
              )
              
              ****
              **-**
              
              
              
              (648,230
              )Discontinued
                  operations (Note 4)
              
              
              35,408
              
              
              
              891,397
              
              
              
              (35,477
              )
              
              
              742,372(104,283
              )
              
              
              123,671
              
              
              
              (677,335
              )
              
              
              12,787**Cash
                  Flows from Investing Activities**Additions
                  to
                  property, plant, and equipment
              
              
              (374,250
              )
              
              
              (65,357
              )
              
              
              (760,796
              )
              
              
              (95,891
              )Additions
                  to
                  deferred development costs
              
              
              (89,999
              )
              
              
              -
              
              
              
              (89,999
              )
              
              
              -(464,249
              )
              
              
              (65,357
              )
              
              
              (850,795
              )
              
              
              (95,891
              )**Cash
                  Flows from Financing Activities**Repayment
                  of
                  notes payable
              
              
              (114,900
              )
              
              
              -
              
              
              
              (75,784
              )
              
              
              -Effect
                  of foreign currency exchange rate changes
              
              
              251,008
              
              
              
              20,768
              
              
              
              336,519
              
              
              
              17,523**Increase
                  (decrease) in cash**
              
              
              (432,424
              )
              
              
              79,082
              
              
              
              (1,267,395
              )
              
              
              (65,581
              )Cash,
                  beginning of the period
              
              
              3,193,157
              
              
              
              516,284
              
              
              
              4,028,128
              
              
              
              660,947**Cash,
                  end of the period**
              
              $
              2,760,733
              
              
              $
              595,366
              
              
              $
              2,760,733
              
              
              $
              595,366


The
      accompanying notes are an integral part of these consolidated financial
      statements.











7





**MED-EMERG
      INTERNATIONAL INC**


**Notes
      to Unaudited Consolidated Financial Statements**


**Three
      and Six Months ended June 30, 2007 and 2006**





**1.
      ORGANIZATION AND DESCRIPTION OF BUSINESS**





Med-Emerg
      International Inc. (“MEII”, “Med-Emerg” or the “Company”) provides quality
      healthcare solutions to the Canadian healthcare industry.





The
      Company is publicly traded and listed on the OTC Bulletin Board. The Company
      completed its initial public offering in February 1998.





The
      Company’s operations are carried out in three units: Staffing Solutions, Medical
      Services and Healthcare Consulting.  Prior to 2005 the Company was
      also involved in the Government Healthcare Services (including Department of
      National Defence “DND”). See Discontinued Operations - Note 4.





For
      Staffing Solutions, the Company provides emergency department physician and
      nurse recruitment, staffing and administrative support services to hospitals
      and
      federal corrections facilities, on a contractual basis, and physician and nurse
      practitioners to select long-term facilities in Ontario. At June 30, 2007,
      the
      Company had about 40 physician and nurse staffing contracts in approximately
      30
      facilities across Ontario.





The
      Medical Services division is comprised of (a) infusion services and (b) pain
      management services.  The infusion business provides special access
      Remicadeä
      infusion services to patients suffering from a variety of inflammatory disorders
      including Crohn’s disease and rheumatoid arthritis, at clinic locations across
      Ontario. In November 2004, the Company acquired a pain management clinic and
      commenced offering services to Toronto-area residents who experience chronic
      pain.  Since then, nine additional clinics have opened.





MEII
      provides Healthcare Consulting services to select Canadian private and public
      institutions on issues related to a variety of healthcare topics.





The
      Company sold all of its medical clinics during the 2003 fiscal year. In January
      2005, the Company resumed operation of a family medical clinic previously sold
      in 2003, after it failed to achieve certain earnings targets.  In
      November, 2005, the Company resumed operation of a second clinic, when the
      buyer
      defaulted on certain payment obligations.  During November 2006 the
      Company established a plan to dispose of the remaining family medical clinics
      and the results of this operation are now included as Discontinued Operations
      (see Note 4).  .





**2.
      BASIS OF PRESENTATION**





The
      accompanying consolidated financial statements have been prepared in accordance
      with Canadian generally accepted accounting principles (“GAAP”). These
      consolidated financial statements consolidate the accounts of MEII and all
      of
      its wholly-owned subsidiaries 927563 Ontario Inc., 927564 Ontario Inc.,
      Med-Emerg Inc., Med-Emerg Health Centres Inc., YFMC Healthcare Inc., YFMC
      Healthcare (Alberta) Inc., Doctors on Call Ltd and CPM Health Centres
      Inc.





Intercompany
      accounts and transactions have been eliminated on consolidation.





The
      consolidated financial statements are expressed in U.S. dollars for the benefit
      of U.S. readers. Differences between Canadian and United States GAAP are
      described in Note 9.





In
      the
      opinion of management, the unaudited interim consolidated financial statements
      follow the same accounting policies and methods of application as the most
      recent audited annual financial statements.





8





Operating
      results for the interim periods are not necessarily indicative of the results
      that may be expected for the year ending December 31, 2007.





These
      unaudited interim consolidated financial statements are condensed, and do not
      include all disclosures required for annual financial statements, which are
      contained in the notes to the Company’s audited consolidated financial
      statements filed as part of the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2006 (the “2006 Annual Report”). These unaudited interim
      consolidated financial statements, footnote disclosures and other information
      should be read in conjunction with the consolidated financial statements and
      the
      notes thereto included in the 2006 Annual Report.








**3.
      SUMMARY OF SIGNIFICANT CHANGES IN ACCOUNTING POLICIES**





**(a)**
            **Financial
                instruments - recognition and
                measurement**





On
      January 1, 2007, the Company adopted Section 3855 of the Canadian Institute
      of
      Chartered Accountants’ (“CICA”) Handbook, “Financial Instruments - Recognition
      and Measurement”. It describes the standards for recognizing and measuring
      financial instruments in the balance sheet and the standards for reporting
      gains
      and losses in the financial statements. Financial assets available for sale,
      assets and liabilities held for trading and derivative financial instruments,
      whether part of a hedging relationship or not, have to be measured at fair
      value.





The
      Company has made the following classifications:





m
            Cash
                and temporary investments are classified as financial assets held
                for
                trading and are measured at fair value. Gains and losses related
                to
                periodic revaluation are recorded in net
                income.


m
            Accounts
                receivable are classified as loans and receivables and are initially
                measured at fair value and subsequently valued at amortized cost
                using the
                effective interest rate method.


m
            Accounts
                payable and accrued liabilities and long-term debt are classified
                as other
                liabilities and are initially measured at fair value and subsequently
                valuaed at amortized cost using the effective interest rate
                method.





The
      adoption of this Section was done retroactively without restatement of the
      consolidated financial statements of prior periods. As at January 1, 2007,
      the
      impact on the consolidated balance sheet of measuring the financial assets
      and
      liabilities using the effective interest rate method was a decrease in accounts
      payable and opening deficit of $16,972.





The
      Company determined that there were no hedging derivatives as at January 1,
      2007.





**(b)         Comprehensive
      income**





On
      January 1, 2007, the Company adopted Section 1530 of the CICA Handbook,
“Comprehensive Income”. It describes reporting and disclosure recommendations
      with respect to comprehensive income and its components. Comprehensive income
      is
      the change in shareholders’ equity, which results from transactions and events
      from sources other than the Company’s shareholders.







9





**(c)         Equity**





On
      January 1, 2007, the Company adopted Section 3251 of the CICA Handbook,
“Equity”, replacing Section 3250, “Surplus”. It describes standards for the
      presentation of equity and changes in equity for reporting period as a result
      of
      the application of Section 1530, “Comprehensive Income”.





The
      Company determined that there was no impact to its financial statements from
      the
      adoption of Section 3250 of the CICA Handbook.





**(d)         Hedges**





On
      January 1, 2007, the Company adopted Section 3865 of the CICA Handbook,
“Hedges”. The recommendations of this Section expand the guidelines required by
      Accounting Guideline 13 (AcG-13), “Hedging Relationships”. This Section
      describes when and how hedge accounting can be applied as well as the disclosure
      requirements. Hedge accounting enables the recording of gains, losses, revenues
      and expenses from the derivative financial instruments in the same period as
      for
      those related to the hedged item.





The
      Company determined that there was no impact to its financial statements from
      the
      adoption of Section 3865 of the CICA Handbook.





(e)         **Deferred
      Clinic Set-up Costs**





During
      the year, the Company adopted the provisions of EIC 127 “Revenues and
      Expenditures During the Pre-operating Period”, regarding the deferral and
      amortization of pre-operating costs over the term associated with which they
      are
      used.





**4.
      DISCONTINUED OPERATIONS**





**Family
      Medical Clinics Sale**





On
      September 5, 2003 the Company entered into a transaction with AIM Health Group
      Ltd. (“AIM”) to dispose of MEII’s Ontario-based clinic operations.





On
      December 31, 2003, MEII’s indirect wholly-owned subsidiary YFMC Healthcare
      (Alberta) Inc. sold certain assets of the following four medical clinics located
      in the province of Alberta: Martindale Medical Centre, McKnight Village Medical
      Clinic, Jasper Avenue Medical Clinic, West Edmonton Mall Medical
      Centre.





Ownership
      of two of the family medical clinics sold in 2003 reverted to the Company in
      2005.  During the fourth quarter of 2006 the decision was taken to
      dispose of these assets.





**Government
      Healthcare Services (including Department of National
      Defence)**





In
      March of 2001, the Company was awarded an administrative management services
      contract (“the Contract”), the largest of its kind, to provide medical staffing
      for military bases of the Department of National Defence (“DND”) across Canada.
      The Contract had an initial period of three years ending on March 31, 2004,
      but
      it was amended and extended until March 31, 2005.





In
      May
      2004, Public Works and Government Services Canada (“PWGSC”) re-tendered the
      Contract.  Med-Emerg responded to the tender proposal and its bid was
      one of three considered by PWGSC (“the New Contract”).  In December
      2004 Med-Emerg learned that it was not successful in its bid to win the New
      Contract with DND.  Its contractual relationship with the Canadian
      government for DND medical staffing services ended on March 31,
      2005.





10





The
      loss from discontinued operations is comprised of a loss from the Family Medical
      Clinics of $125,208, (2006 - a loss of $81,533) and income from the DND Contract
      of $3,941, (2006 - income of $69,280).





The
      summarized statements of loss for the Discontinued Operations
      follows:





Three
                Months Ended June 30
            
            
            Six
                Months Ended June 302007
            
            
            2006
            
            
            2007
            
            
            2006Revenue
            
            $
            174,330
            
            
            $
            183,856
            
            
            $
            334,468
            
            
            $
            723,659Physician
                fees and other direct costs
            
            
            86,215
            
            
            
            81,100
            
            
            
            163,052
            
            
            
            235,942Gross
                margin
            
            
            88,115
            
            
            
            102,756
            
            
            
            171,416
            
            
            
            487,717Operating,
                general and administrative expenses
            
            
            157,447
            
            
            
            163,540
            
            
            
            296,244
            
            
            
            425,095Interest
                and other expenses, net of recoveries
            
            
            (4,963
            )
            
            
            40,058
            
            
            
            (3,561
            )
            
            
            74,875Income
                (loss) from discontinued operations
            
            $
            (64,369
            )
            
            $
            (100,842
            )
            
            $
            (121,267
            )
            
            $
            (12,253
            )





Results
      of discontinued operations for 2006 have been restated to reflect the impact
      of
      the decision taken in November 2006 to discontinue the Family Medical
      Business.  The restatement had the following impact on the 2006
      results:





Three
                  Months to June 30, 2006
              
              
              Six
                  Months to June 30, 2006(as
                  previously
              
              
              
              
              
              (as
                  previouslyreported)
              
              
              (as
                  adjusted)
              
              
              reported)
              
              
              (as
                  adjusted)Revenue
              
              $
              6,337
              
              
              $
              183,856
              
              
              $
              293,045
              
              
              $
              723,659Physician
                  fees and other direct costs
              
              
              -
              
              
              
              81,100
              
              
              
              -
              
              
              
              235,942Gross
                  margin
              
              
              6,337
              
              
              
              102,756
              
              
              
              293,045
              
              
              
              487,717Operating,
                  general and administrative expenses
              
              
              18,634
              
              
              
              163,540
              
              
              
              148,890
              
              
              
              425,095Interest
                  and other expenses
              
              
              40,055
              
              
              
              40,058
              
              
              
              74,872
              
              
              
              74,875Income
                  from discontinued operations
              
              $
              (52,352
              )
              
              $
              (100,842
              )
              
              $
              69,283
              
              
              $
              (12,253
              )





The
      summarized balance sheets for the Discontinued Operations are:




June
                30,
            
            
            December
                31,2007
            
            
            2006AssetsCurrentCash
            
            $
            529
            
            
            $
            1,755Accounts
                receivable
            
            
            -
            
            
            
            462,115$
            529
            
            
            $
            463,870LiabilitiesCurrentAccounts
                payable and accrued liabilities
            
            $
            645,381
            
            
            $
            880,373Long-term
                debt
            
            
            138,315
            
            
            
            280,873$
            783,696
            
            
            $
            1,161,246Net
                liabilities
            
            $
            783,167
            
            
            $
            697,376

















11





The
      long-term debt of $138,315 ($280,873 at December 31, 2006) pertains to the
      long-term portion of the Goods and Services Tax (“GST”) which is payable over a
      period of five years, pursuant to an agreement between the Company and the
      Canada Revenue Agency (“CRA”).  The GST obligation arose on revenues
      associated with the DND contract.  An amount of $28,164 (CDN$30,000)
      is payable monthly and is reviewable every six months. The current portion
      of
      this debt $337,968 (December 31, 2006 - $296,904) has been classified under
      current portion of Discontinued Operations. The CRA has the right to register
      a
      Lien under the Personal Property Security Act with the Province of Ontario
      to
      secure its position.





**5. INCOME
      TAXES**





The
      Company continues to fully recognize its tax benefits which are offset by a
      valuation allowance to the extent that it is not more likely than not that
      the
      deferred tax assets will be realized. As at June 30, 2007, the Company had
      unrecognized tax benefits of $3.1 million associated with non-capital loss
      carryforwards and tax pools of $9.2 million.





The
      Company files federal and provincial income tax returns in
      Canada.  The Company is generally no longer subject to provincial
      income tax examinations by provincial tax authorities for years before 2005
      and
      to federal income tax examinations for years before 2003. The Canada Revenue
      Agency (“CRA”) commenced an examination of the Company’s Canadian income tax
      returns for 2003 and 2004 in the third quarter of 2006 that is anticipated
      to be
      completed by the end of 2007. As of June 30, 2007, the CRA has not made any
      proposed adjustments to the Company’s tax positions. Management does not
      anticipate that adjustments, if any, which may be proposed by the CRA would
      result in a material change to its financial position.





The
      Company recognizes any interest accrued related to unrecognized tax benefits
      in
      interest expense and penalties in operating expenses. During the three and
      six
      month periods ended June 30, 2007 and 2006, there was no such interest or
      penalty.





**6.
      CAPITAL STOCK**





**(a)        Share
      Capital**





On
      July
      11, 2006, the Company executed definitive agreements with Calian Technologies
      Ltd. for the private placement of 8,750,000 shares of the Company’s newly
      designated Series I Special Shares (the “Series I Shares”) for aggregate gross
      proceeds to the Company of CDN$3.5 million ($3.1 million).  On July
      12, 2006, the Company received CDN$1.75 million ($1.57 million). The remainder
      of the funds consisting of CDN$ 1.75 million ($1.57 million) were received
      by
      the Company as follows: (i) the amount of CDN$0.875 million ($0.785 million)
      was
      received on August 30, 2006, upon the filing by the Company of a registration
      statement covering the resale of the Common Shares underlying the Series I
      Shares and the (ii) remainder of the consideration was received on September
      21,
      2006, when the registration statement was declared effective by the Securities
      and Exchange Commission.  The Series I Shares have a term of five
      years.





The
      Series I Shares are, at the option of the holder, convertible at any time into
      the Company’s Common Shares, at an initial conversion rate of one Common Share
      for each Series I Share, subject to adjustment in the event of certain capital
      adjustments or similar transactions, such as a stock split or merger. Commencing
      on the second anniversary of issuance, the Company is entitled to require the
      conversion of outstanding Series I Shares at the applicable conversion rate,
      provided that the following conditions are satisfied: (i) the volume weighted
      average trading price (VWAP) of the Company’s Common Share on the principal
      exchange or market (including the OTC Bulletin Board) on which the Common Shares
      are traded or quoted is greater than or equal to $0.46 (as may be adjusted
      in
      respect of any stock split) during any 60 consecutive calendar day period,
      (ii)
      the total volume of Common Shares traded over such period


exceeds
      600,000 shares (as adjusted to reflect any stock splits), and (iii) the Company
      delivers written notice of such conversion to the holders of the Series I Shares
      within 10 days of the satisfaction of the





12





above
      conditions. The Company's right to require such conversion is further subject
      to
      there being an effective registration statement at the time covering the resale
      of the Common Shares underlying the Series I Shares.  If not converted
      into Common Shares prior to the fifth anniversary of issuance, the Series I
      Shares are automatically redeemable at the sole discretion of the Company in
      either (a) cash at a rate of $0.45 per share or (b) in Common Shares of the
      Company based on the VWAP of the Common Shares of the Company during the sixty
      (60) consecutive calendar day period immediately preceding the fifth
      anniversary.  In the event of a change in control, the Series I Shares
      are also required to be redeemed in cash at a rate of $0.45 per
      share.  The mandatory redemption and conversion features of the Series
      I Shares result in the classification of separate liability and equity
      components of the Series I Shares.





The
      Series I Shares have been accounted for as a compound financial instrument
      consisting of both a financial liability and equity component.  The
      proceeds of the Series I Shares were allocated to the two components based
      on
      the present value of the future redemption value of the Series I Shares,
      discounted at a rate of 3.4%, which reflected management’s estimate of the rate
      of return required for instruments with similar characteristics and terms at
      the
      time of the issuance of the Series I Shares.





**(b)        Common
      stock purchase warrants**





During
      the third quarter of 2006, the terms of the 1,437,500 Common Share purchase
      warrants were amended, extending the expiry of these warrants from August 11,
      2006 to September 11, 2006.  The incremental fair value determined by
      Black Scholes was $4,648 and the fair value assumptions were a risk-free rate
      of
      2.6% an expected life of 30 days, expected volatility of 98% and expected
      dividends of nil. This amount was charged to income as stock based compensation
      expense and credited to contributed surplus. These warrants expired September
      11, 2006.





During
      the first quarter of 2006, the terms of the Common Share purchase warrants
      were
      amended, extending the expiry of these warrants from February 11, 2006 to August
      11, 2006. The incremental fair value determined by Black Scholes was $69,876
      and
      the fair value assumptions were a risk-free rate of 2.5% an expected life of
      one
      year, expected volatility of 119% and expected dividends of NIL.  This
      amount was charged to income as stock based compensation expense and credited
      to
      contributed surplus.





**7.
      CONTRIBUTED SURPLUS**





During
      the third quarter of 2006 Common Share purchase warrants
      expired.  When the Common Share purchase warrants were issued in 1998,
      $106,111 of value was attributed to the Common Share purchase
      warrants.  With expiration of the Common Share purchase warrants the
      value attributed to them was written-off.  This amount was credited to
      contributed surplus.





During
      the third quarter of 2006, an amount of $4,648 was recorded as stock
      compensation expense for the extension of 1,437,500 Common Share purchase
      warrants from August 11, 2006 to September 11, 2006. This amount was credited
      to
      contributed surplus.





During
      the second quarter of 2006, an amount of $10,456 was recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the second quarter of 2006. This amount was credited to
      contributed surplus.





During
      the first quarter of 2006, the terms of the Common Share purchase warrants
      were
      amended, extending the expiry of these warrants from February 11, 2006 to August
      11, 2006. As a result of this, stock compensation expense of $69,876 was
      recorded. In addition, an amount of $8,527 has been recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the first quarter of 2006. These amounts have been credited
      to
      contributed surplus.





13





**8.
      RELATED PARTY TRANSACTIONS**





During
      the first six months of 2007, included in general and administration expenses
      are administrative fees of $nil in regards to payments to a related company
      ($31,872 in 2006). There are no related party balances outstanding at June
      30,
      2007 or December 31, 2006.   These transactions have been
      recorded at their exchange amount which is the amount agreed to by the related
      parties.





**9.
      CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES**





These
      consolidated financial statements have been prepared in accordance with Canadian
      GAAP, which conform in all material respects with accounting principles
      generally accepted in the United States (“U.S. GAAP”) during the periods
      presented, except with respect to the following:





**(a)        Redeemable
      Series I Special Shares**





The
      Series I Shares are accounted for as a compound financial instrument comprising
      both a financial liability and equity under Canadian GAAP, because of their
      underlying terms and conditions, which include a mandatory redemption feature.
      Under U.S. GAAP, EITF Abstract Topic D-98 *Classification and Measurement of
      Redeemable Securities*recommends that shares that are redeemable for cash
      based on an occurrence of events outside of the control of the company should
      be
      classified outside of shareholders’ equity. The Series I Shares, which are
      redeemable for cash in the event of a change in control, are presented outside
      of shareholders’ equity for U.S. GAAP purposes. At this time it is management’s
      intention to redeem the Series I Shares through the issuance of common
      shares.





As
      a
      result of accounting for the Series 1 Shares as a compound financial instrument
      under Canadian GAAP, the liability component is accreted to the face value
      of
      the shares over the five year period to maturity.  As the Series 1
      Shares are not a liability for U.S. GAAP purposes the accretion expense charged
      to net income for the period under Canadian GAAP is reversed for U.S. GAAP
      purposes.  Furthermore, since under U.S. GAAP the Series 1 Shares are
“quasi-equity” the face value is adjusted to the initial U.S. dollar value on
      issuance and the foreign currency translation adjustment recorded under Canadian
      GAAP relating to the liability component is reversed for U.S. GAAP
      purposes.





The
      reconciliation of Canadian to U.S. GAAP for the Series 1 Shares is as
      follows:





June
                30,
            
            
            December
                31,2007
            
            
            2006Liability
                portion of redeemable, convertible Series I Shares -Canadian
                GAAP
            
            $
            2,883,892
            
            
            $
            2,589,159Impact
                of accretion expense
            
            
            (96,409
            )
            
            
            (48,124
            )Equity
                portion of redeemable, convertible Series I Shares - Canadian
                GAAP
            
            
            482,043
            
            
            
            482,043Translation
                adjustment attributable to Series I Shares
            
            
            (162,972
            )
            
            
            83,476Series
                I Shares - U.S. GAAP
            
            $
            3,106,554
            
            
            $
            3,106,554





**(b)         Share
      capital, goodwill and correction of prior period error**





Under
      Canadian GAAP, the purchase price of an acquisition completed prior to 2006
      was
      determined based on the share price on the date the transaction was consummated.
      Under U.S. GAAP, the purchase price of an acquisition where shares are issued
      is
      determined based on the share price for the period surrounding the announcement
      date of the acquisition. The share price used for the YFMC Healthcare Inc.
      acquisition in 1999 under Canadian GAAP was $1.25. The share price used for
      the
      YFMC Healthcare





14





Inc.
      acquisition under U.S. GAAP was $1.859. The difference was allocated to goodwill
      at that time and, subsequently, the goodwill was impaired and
      written-off.





**(c)         Stock
      purchase warrants**





Under
      U.S. GAAP, detachable stock purchase warrants are given separate recognition
      from the primary security issued.  Upon initial recognition, the
      carrying amount of the two securities is allocated based on the relative fair
      values at the date of issuance.  Under Canadian GAAP, the detachable
      stock purchase warrants issued in conjunction with the private stock offering
      on
      January 22, 1996 and subsequently surrendered, have been given no recognition
      in
      the consolidated financial statements. Under U.S. GAAP, based on an ascribed
      fair value of $0.364 for each of the 1,000,000 share purchase warrants issued,
      share capital would be lower by $36,406 and, given that the share purchase
      warrants were cancelled, the carrying amount of contributed surplus would be
      increased by $36,406.





**(d)         Comprehensive
      loss**





Statement
      of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130), establishes standards for the reporting and display of comprehensive
      income and its components in the consolidated financial
      statements.  Under U.S. GAAP the foreign currency translation
      adjustment recorded for the period and included in the cumulative translation
      adjustment in shareholders’ equity is included in comprehensive income
      (loss).  The foreign currency translation adjustments are not
      currently adjusted for income taxes. The company is situated in Canada, and
      the
      foreign currency translation adjustments relate to the translation of the
      consolidated financial statements from Canadian dollars into United States
      dollars, solely for the convenience of the readers.





**(e)         Start-up
      costs**





Under
      Canadian GAAP as described in EIC 127 “Revenues and Expenditures During the
      Pre-operating Period”, certain pre-operating costs may be deferred and amortized
      over the term associated with which they were incurred.  Under U.S.
      GAAP such start-up costs are expensed in the period in which they
      occur.





**(f)          Accounting
      for Income Taxes**





On
      January 1, 2007, the Company adopted the provisions of Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. The interpretation
      requires that the Company recognize the impact of a tax position in the
      financial statements if that position is more likely than not to be sustained
      on
      audit, based on the technical merits of the position. FIN 48 also provides
      guidance on de-recognition, classification, interest and penalties, accounting
      in interim periods and disclosure. In accordance with the provisions of FIN
      48,
      any cumulative effect resulting from the change in accounting principle is
      to be
      recorded as an adjustment to the opening balance of deficit. The adoption of
      FIN
      48 did not result in a material impact on the Company’s financial position or
      results of operations.





The
      effect of these accounting differences on capital stock, contributed surplus,
      deficit, cumulative translation adjustment, net income (loss) and net income
      (loss) per share are as follows:





15








June
                30,
            
            
            December
                31,2007
            
            
            2006Capital
                stock - Canadian GAAP
            
            $
            16,420,668
            
            
            $
            16,420,668Capital
                stock issued on purchase of YFMC Healthcare Inc. (Note 9b)
            
            
            1,087,872
            
            
            
            1,087,872Ascribed
                fair value of share purchase warrants issued (Note 9c)
            
            
            (36,406
            )
            
            
            (36,406
            )Equity
                portion of redeemable Series I Shares (Note 9a)
            
            
            (482,043
            )
            
            
            (482,043
            )Capital
                stock - U.S. GAAP
            
            $
            16,990,091
            
            
            $
            16,990,091Contributed
                surplus - Canadian GAAP
            
            $
            3,106,792
            
            
            $
            3,106,792Share
                purchase warrants (Note 9c)
            
            
            36,406
            
            
            
            36,406Additional
                paid-in capital U.S. GAAP
            
            $
            3,143,198
            
            
            $
            3,143,198Deficit
                - Canadian GAAP
            
            $
            (17,717,430
            )
            
            $
            (17,253,951
            )Write-off
                of goodwill on purchase of YFMC Healthcare Inc. (Note 9b)
            
            $
            (1,087,872
            )
            
            $
            (1,087,872
            )Impact
                of accretion expense (Note 9a)
            
            
            96,409
            
            
            
            48,124Financial
                instruments - recognition and measurement (Note 3a)
            
            
            (16,972
            )
            
            
            -Interest
                expense on financial liability carried at amortized cost (Note
                3a)
            
            
            9,036
            
            
            
            -Impact
                of start-up costs (Note 9e)
            
            
            (89,999
            )
            
            
            -Deficit
                - U.S. GAAP
            
            $
            (18,806,828
            )
            
            $
            (18,293,699
            )Cumulative
                translation adjustment - Canadian GAAP
            
            $
            (767,746
            )
            
            $
            (849,552
            )Translation
                adjustment attributable to Series I Shares (Note 9a)
            
            
            162,972
            
            
            
            (83,476
            )Cumulative
                translation adjustment - U.S. GAAP
            
            $
            (604,774
            )
            
            $
            (933,028
            )Shareholders'
                equity - U.S. GAAP
            
            $
            721,687
            
            
            $
            906,562








Three
                Months Ended June 30
            
            
            Six
                Months Ended June 302007
            
            
            2006
            
            
            2007
            
            
            2006Net
                income (loss) - Canadian GAAP
            
            $
            (193,225
            )
            
            $
            692,565
            
            
            $
            (480,451
            )
            
            $
            761,405Impact
                of accretion expense (Note 9a)
            
            
            23,854
            
            
            
            -
            
            
            
            47,956
            
            
            
            -Interest
                expense on financial liability carried at amortized cost (Note
                3a)
            
            
            4,279
            
            
            
            -
            
            
            
            9,036
            
            
            
            -Impact
                of deferred set-up costs (Note 9e)
            
            
            (36,702
            )
            
            
            -
            
            
            
            (89,999
            )Net
                income (loss) - U.S. GAAP
            
            
            (201,794
            )
            
            
            692,565
            
            
            
            (513,458
            )
            
            
            761,405Foreign
                currency translation adjustment
            
            
            220,299
            
            
            
            20,768
            
            
            
            328,254
            
            
            
            17,523Comprehensive
                income (loss)
            
            $
            18,505
            
            
            $
            713,333
            
            
            $
            (185,204
            )
            
            $
            778,928Net
                income (loss) per share, basic and diluted - Canadian GAAPContinuing
                operations
            
            $
            (0.00
            )
            
            $
            0.00
            
            
            $
            (0.01
            )
            
            $
            0.00Discontinued
                operations
            
            $
            (0.00
            )
            
            $
            0.01
            
            
            $
            (0.00
            )
            
            $
            0.01Net
                income (loss) per share, basic and diluted - U.S. GAAPContinuing
                operations
            
            $
            (0.00
            )
            
            $
            0.00
            
            
            $
            (0.00
            )
            
            $
            0.00Discontinued
                operations
            
            $
            (0.00
            )
            
            $
            0.01
            
            
            $
            (0.00
            )
            
            $
            0.01No.
                of shares outstanding
            
            
            58,277,696
            
            
            
            58,277,696
            
            
            
            58,277,696
            
            
            
            58,277,696








16





**Recently
      Issued Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which
      is
      effective for fiscal years beginning after November 15, 2007 and for interim
      periods within those years. This statement defines fair value, establishes
      a
      framework for measuring fair value and expands the related disclosure
      requirements. The Company is currently evaluating the potential impact of this
      statement on its consolidated financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” This standard provides companies
      with an option to report selected financial assets and liabilities at fair
      value. The Standard’s objective is to reduce both complexity in accounting for
      financial instruments and the volatility in earnings caused by measuring related
      assets and liabilities differently. This standard also establishes presentation
      and disclosure requirements designed to facilitate comparisons between companies
      that choose different measurement attributes for similar types of assets and
      liabilities. This Statement is effective as of the beginning of an entity’s
      first fiscal year beginning after November 15, 2007. The Company is currently
      evaluating the potential impact of this statement on our consolidated financial
      statements.





**10.
      CONTINGENT LIABILITIES**





(i)
            There
                is uncertainty with respect to the Company’s liability for Goods and
                Services Tax pertaining to certain services that it previously
                provided.  The measurement of this uncertainty is not
                determinable and management is of the view that it is not probable
                that a
                liability will be confirmed.  No provision has been made in
                respect thereof, in these consolidated financial
                statements.





(ii)
            There
                is uncertainty with respect to the Company’s liability arising from a
                contractual dispute with a third party.  The potential costs to
                the Company associated with this dispute range from $nil to $1.6
                million.  The Company is of the view that it is not probable
                that the Company will be found liable for these costs. No provision
                has
                been made in respect thereof, in these consolidated financial
                statements.





(iii)
            Claims
                have been made against the Company for unspecified damages in regards
                to a
                claim for wrongful dismissal and breach of contract.  The
                Company is of the view that liability, if any, would be the responsibility
                of a third party contractor and if damages were found, they would
                not be
                material in light of the current law.  Since management is of
                the opinion that the claim is unlikely to succeed, no provision has
                been
                made in respect thereof in these consolidated financial
                statements.





(iv)
            The
                Company sub-leased certain premises to third parties when it disposed
                of
                its clinic operations (see Note 4 - Discontinued Operations). In
                case of
                payment defaults by the third parties, the Company could be held
                liable
                for rent on these premises. Rent for these premises over the next
                seven
                years, during the respective lease terms, totals approximately
                $900,000.





(v)
            The
                Company is party to various claims and legal proceedings arising in
                the normal course of business.  While claims and litigation
                are subject to inherent uncertainties, management currently believes
                that
                the ultimate outcome of claims and proceedings, individually and in
                the aggregate, will not have a material adverse effect on our consolidated
                financial position, results of operations or cash
                flows.





Any
      liability resulting from the above will be recorded as a charge to earnings
      in
      the period it is determined the occurrence of a confirming future event is
      likely and the amount of loss can be reasonably estimated.








17





**11.
      SEGMENTED INFORMATION**





The
      Company operates under three business units: Staffing Solutions, Medical
      Services, and Healthcare Consulting Services.





The
      segmented information for the business units are as follows:





Three
                Months Ended June 30
            
            
            Six
                Months Ended June 302007
            
            
            2006
            
            
            2007
            
            
            2006RevenueStaffing
                solutions
            
            $
            2,638,345
            
            
            $
            3,026,526
            
            
            $
            5,375,617
            
            
            $
            5,687,083Medical
                services
            
            
            2,613,454
            
            
            
            1,513,358
            
            
            
            4,698,656
            
            
            
            2,701,752Healthcare
                consulting
            
            
            100,487
            
            
            
            217,348
            
            
            
            349,164
            
            
            
            651,8675,352,286
            
            
            
            4,757,232
            
            
            
            10,423,437
            
            
            
            9,040,702Divisional
                income (loss) before the undernotedStaffing
                solutions
            
            
            48,182
            
            
            
            106,247
            
            
            
            21,516
            
            
            
            245,863Medical
                services
            
            
            102,638
            
            
            
            158,181
            
            
            
            23,661
            
            
            
            80,355Healthcare
                consulting
            
            
            (193,447
            )
            
            
            (54,531
            )
            
            
            (237,911
            )
            
            
            (10,548
            )(42,627
            )
            
            
            209,897
            
            
            
            (192,735
            )
            
            
            315,670Interest
                income, net of bank charges
            
            
            (46,057
            )
            
            
            (6,813
            )
            
            
            (53,390
            )
            
            
            -Interest
                on long-term debt
            
            
            39,883
            
            
            
            14,449
            
            
            
            68,980
            
            
            
            14,449Amortization
                of property, plant and equipment
            
            
            88,124
            
            
            
            46,628
            
            
            
            141,823
            
            
            
            86,934Interest
                expense on financial liability carried at amortized cost
            
            
            4,279
            
            
            
            -
            
            
            
            9,036
            
            
            
            -Stock
                based compensation expenses
            
            
            -
            
            
            
            10,456
            
            
            
            -
            
            
            
            88,85986,229
            
            
            
            64,720
            
            
            
            166,449
            
            
            
            190,242Net
                income (loss) from continuing operations
            
            $
            (128,856
            )
            
            $
            145,177
            
            
            $
            (359,184
            )
            
            $
            125,428





**12.  ECONOMIC
      DEPENDENCE**





The
      Company derived approximately 19% of its revenue for the six month period ended
      June 30, 2007 (14% - 2006) from services provided under its contract with
      Schering-Plough Canada Inc. (“Schering”), and as such is subject to
      concentration risk associated with the continuation of its contract with
      Schering.




**13.  SUBSEQUENT
        EVENT**




Effective
      July 31, 2007, the Company sold certain assets associated with its Family
      Medical Clinic in Alberta.  See Note 4 - Discontinued
      Operations.  The Company anticipates that no material gain or loss
      will be recognized on the sale of these assets.




**14.  COMPARATIVE
        FIGURES**





Certain
      figures in the 2006 consolidated financial statements have been reclassified
      to
      conform to the basis of presentation in 2007.  The results for Family
      Medical Clinics, which were reported as part of Medical Services in 2006, have
      been reclassified as discontinued operations (Note 4).





18





ITEM
      2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





**THE
      FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
      FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-Q.
      THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
      UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
      PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS
      BY
      TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "PLAN," "ANTICIPATE,"
      "BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL," "INTEND," OR "CONTINUE," AND
      SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS
      MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
      AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
      FORTH UNDER PART II, ITEM 1.A "RISK FACTORS" AND ELSEWHERE IN THIS QUARTERLY
      REPORT ON FORM 10-Q.**





The
      Company’s operations are comprised of three business units: Staffing Solutions,
      Medical Services and Healthcare Consulting Services.  During the first
      half of 2007, 52% of the Company’s revenue was generated by the Staffing
      Solutions unit; 45% by the Medical Services unit; and 3% by the Healthcare
      Consulting unit.  From a Gross Margin perspective, the gross margin
      generated from the three business units was 27%, 65% and 8%,
      respectively.





The
      Company is well positioned to deal with the continuous challenges that confront
      the Canadian healthcare system.  Some of these challenges, including
      the growing shortage of ER doctors, longer waiting times by patients, and the
      growing cost of public medicine, play directly into the Company’s
      strengths.





The
      Company’s Staffing Solutions provide physician-staffing services to more than 30
      healthcare facilities across Ontario, including rural and urban hospitals as
      well as tertiary care centers and corrections facilities.





MEII’s
      Medical Services, which are delivered through wholly owned subsidiaries, include
      chronic pain management and intravenous infusion services for pharmaceutical
      companies in conveniently located community-based clinics and family medical
      clinics





The
      Company’s Healthcare Consulting Services provide custom solutions for
      governments and national and provincial bodies on a variety of matters including
      primary care renewal, project evaluation, and healthcare human resource
      planning.





The
      Company tracks its operations by monitoring certain key performance
      indicators.  For Staffing Solutions, the Company monitors the number
      of contracts under administration, monthly shifts booked, and gross margin
      per
      contract.  For Medical Services, the Company tracks the number of
      infusions for Infusion Services and the number of patient referrals, average
      billing per patient and the number of patient visits for the pain management
      practice.  For Healthcare Consulting Services, the Company tracks the
      gross margin per contract and our win / loss ratio on contract
      bids.   The Company also measures certain key balance sheet
      ratios such as working capital, to monitor our cash flow situation.





The
      Staffing Solutions business is driven by the Company’s ability to recruit and
      retain physicians and nurse practitioners.  With the chronic shortage
      of healthcare providers, the Company dedicates considerable resources to
      attracting new providers to the Company.  Because of the limited
      supply of healthcare providers, the inability to attract additional personnel
      could limit the Company’s ability to fill open shifts and to continue its
      revenue growth.





Growth
      of the Company’s Medical Services business is dependent on several
      factors.  The Infusion business is reliant upon the Company’s ability
      to introduce new drug therapies through its infusion clinics





19





and
      by
      expanding the number of clinic locations. Failure to succeed with either of
      these initiatives will limit the Company’s ability to drive its revenue
      growth.  For Pain Management Services, growth is dependent on the
      Company’s ability to recruit additional doctors to provide pain
      therapies.





The
      growth of Healthcare Consulting Services is dependent on market developments
      in
      Canadian healthcare.  At this time, management believes that there
      exist growth opportunities because of on-going demand for health human resource
      planning, primary healthcare reform initiatives and pandemic
      planning.





*STAFFING
      SOLUTIONS*





MEII
      is
      the leading provider of ER doctors to Ontario hospitals. The Company provides
      physician-staffing services to more than 30 healthcare facilities across
      Ontario, including rural and urban hospitals as well as tertiary care centers
      and corrections facilities. The Company believes that on-going physician
      shortages and continuing demand for improved levels of care will continue to
      drive its Staffing Solutions business.




In
      addition to its conventional ER staffing, MEII has developed a unique integrated
      staffing solution, which was trialed in 1996 to recruit primary care
      practitioners into mental health facilities.  Based on patient
      population, the nature of the cases being treated, and the total cost of the
      current system, MEII introduced a healthcare model combining Primary Care
      Physicians with Primary Care Nurse Practitioners. This was the first time a
      nurse practitioner function was introduced into a mental health setting. The
      program, now in its tenth year of operation, has received high satisfaction
      ratings from both staff and patients, resulting in one of the Company’s clients
      receiving the ACE award from the Ministry of Health for Innovation in Health
      Care Delivery Design. In June 2002, the Centre for Addiction and Mental Health
      in Toronto, Canada, awarded MEII a similar contract for primary care services.
      In 2004, the Company introduced Primary Health Care Nurse Practitioners to
      its
      mix of healthcare providers in community-based hospitals.




In
      September 2006 the Company recruited Dr. Jim Ducharme to lead the clinical
      aspect of Staffing Solutions.  Dr. Ducharme is a nationally recognized
      emergency medicine specialist and is the past president of the Canadian
      Association of Emergency Physicians.  Dr. Ducharme brings a very broad
      perspective of the challenges facing emergency departments today and he is
      an
      important asset in the Company’s future growth of the Staffing Solutions
      business.  Dr Ducharme was instrumental in the Company’s development
      of a training program designed for Ontario’s family physicians.  In
      concert with the College of Family Physicians, MEII developed and hosted
      training sessions designed to re-introduce family physicians to the
      ER.  The program was well received and it is anticipated that future
      training sessions will ensue in 2007.  Concurrent with the addition of
      Dr. Ducharme, the division was realigned to expand its business development
      capabilities in anticipation of increased staffing opportunities.





*MEDICAL
      SERVICES*




MEII
      provides innovative medical services directly to healthcare
      consumers.




*Infusion
      Services*


In
      March 2001, MEII entered into an agreement with Schering-Plough Canada Inc.
      to
      become a coordinator for the community-based infusion of the medication known
      as
      RemicadeTM.  This contract capitalizes on the Company's access to clinics
      for the treatment of patients with various inflammatory disorders, including
      rheumatoid arthritis and Crohn's disease. The Company delivered more than 10,100
      infusions in 2006.  During the first half of 2007, the Company
      provided approximately 7,300 infusions, compared to approximately 4,720
      infusions in the first six months of 2006.





20





MEII
      expects continued growth for this service, as infusion services move from
      institutional to community-based settings.





As
      of
      June 30, 2007, the Company operated 22 virtual clinics across
      Ontario.  On an as-required basis, the Company rents space in
      community-based medical clinics.  MEII’s team of infusion coordinators
      arrange for patients to arrive at the clinic at a prescribed time and for a
      physician and nurse to be available to attend to their needs.  The
      RemicadeTM is supplied by a local pharmacy.





RemicadeTM
      is currently approved by Health Canada for six indications in Ontario:
      rheumatoid arthritis, Crohn’s disease, ankylosing spondylitis ulcerative
      colitis, psoriatic arthritis and psoriasis. Once an indication is approved
      by
      Health Canada, it is more likely that doctors will prescribe the medicine and
      that insurance companies will insure the medicine.  Historically, more
      than 85% of infusions have related to Crohn’s disease and rheumatoid
      arthritis.  Total infusions grew by 54% in the first six months of
      2007 over the same period in 2006.  The Company expects growth related
      to RemicadeTM to level off in the near term, unless additional indications are
      approved by Health Canada.





The
      Company continues to look for additional products to offer through its infusion
      clinics and the opportunity to open clinics in new locations.





*Pain
      Management Services*


MEII’s
      chronic pain management service, CPM Health Centres Inc. (“CPM”), was launched
      in November 2004 with the acquisition of the Scarborough Pain Clinic. A second
      location, in downtown Toronto, was opened in December 2004, two more locations
      were opened in 2005, in Hamilton and Mississauga and a fifth one in Oakville,
      Ontario opened in 2006.  During the first six months of 2007, clinics
      were opened in Ottawa, London, Oshawa, and St. Catharines Ontario.





CPM
      has
      developed a standardized approach to the treatment of chronic pain, using an
      integrated multi-disciplinary approach including anesthetists and ER physicians,
      amongst others.





In
      August of 2005, Dr. Roman Jovey, the President of the Canadian Pain Society,
      joined CPM as its Medical Director.  Over the last 15 years, Dr. Jovey
      has developed an international reputation in the field of chronic, non-cancer
      pain, using pharmacotherapy.  In addition to maintaining a private
      practice, Dr. Jovey also consults with the pharmaceutical industry and
      educational institutions on medical educational programs related to
      pain.  He is also a medico-legal expert for the Canadian Medical
      Protective Association on cases related to opioids, pain and
      addiction.  In his capacity as Medical Director, Dr. Jovey oversees
      the clinical aspects of CPM and assists in the training of new
      physicians.





The
      Company intends to increase the number of physicians available to treat those
      suffering from chronic pain and thereby improve service availability to a
      healthcare sector that is plagued by long wait times.  The Company has
      developed and launched a training program specifically designed to educate
      emergency room physicians in chronic pain management.





The
      clinic that CPM acquired in November 2004 increased patient visits from
      approximately 300 patients per month to more than 700 patients per month during
      2006.  Year-over-year, CPM almost doubled its patient visits from
      approximately 8,140 patient visits during the first six months of 2006 to
      approximately 15,500 patient visits in the first half of 2007.





Plans
      are underway to further increase capacity in 2007 by training more doctors
      and
      by opening additional clinics.








21





*HEALTHCARE
      CONSULTING*





Over
      the years, MEII has developed significant experience in international and
      domestic healthcare consulting.  Currently the Company is providing
      consulting services under several contracts, advising on a range of issues
      related to primary care staffing, health human resource planning, and integrated
      service delivery models.





The
      Company is currently in negotiations with several provincial bodies to provide
      services.  During 2006 the Company provided services to the Ministry
      of Health and Long-Term Care, Ontario, in regards to pandemic planning and
      the
      use of nurse practitioners and physicians’ assistants in an ER setting;
      developed and designed nine business plans with respect to Family Health Teams
      across Ontario; and assisted the Ministry of Health, Nova Scotia in researching
      the use of international medical graduates.





MEII
      has used a ‘virtual’ model to build its healthcare consulting
      practice.  Under the guidance of MEII’s Director of Health Services
      Consulting, the Company responds to contract tenders for projects that meet
      pre-defined criteria.  Project-specific teams are assembled, based on
      the needs of the contract.  The Company calls on the expertise of
      leading academics and industry leaders to work on specific
      projects.  On a recent contract, the Company worked with two
      internationally recognized subject-matter experts, a former senior public-health
      officer and surgeon, two professors at leading Canadian universities, a lawyer,
      and a chief health human resource officer for a provincial
      government.  In tandem with MEII’s own project manager, the contract
      was won in a competition against bids from several multi-national consulting
      firms.





**DISCONTINUED
      OPERATIONS- GOVERNMENT HEALTHCARE SERVICES**





In
      March 2001, the Company was awarded an administrative management services
      contract (the “DND Contract”), the largest of its kind, to provide medical
      staffing for military bases of the Department of National Defence (DND) across
      Canada. The DND Contract had an initial period of three years ending on March
      31, 2004, but it was amended and extended until March 31, 2005. In December
      2004
      MEII learned that it was not successful in its bid to win a replacement contract
      with DND and its contractual relationship for DND medical staffing services
      ended on March 31, 2005.





In
      January 2005 the Company filed a Cdn$100,000,000 lawsuit against the winning
      bidder and a former employee of the Company.  This action was settled on
      July 11, 2006.





On
      January 31, 2005, the Company filed a complaint with the Canadian International
      Trade Tribunal (CITT) wherein the Company questioned the manner in which the
      Government of Canada’s procurement for the DND medical staffing contract was
      conducted. On April 26, 2006, the Federal Court of Appeal dismissed the
      Company’s application.





**RESULTS
      OF OPERATIONS**





**Three
      months ended June 30, 2007 compared to three months ended June 30,
      2006**





**REVENUE**





The
      Company's revenue from continuing operations for the three months ended June
      30,
      2007 was $5,352,286 compared to $4,757,232 for the three months ended June
      30,
      2006.





The
      increase in revenue during the 2007 period over the comparable 2006 period
      of
      approximately 12% was attributable to an increase in the Medical Services
      division.  Divisional revenues were:





22











**Quarter
                Ended June 30,****Revenue**
            **2007**
            **2006**Staffing
                Solutions
            2,638,345
            3,026,526Medical
                Services
            2,613,454
            1,513,358Healthcare
                Consulting
            100,487
            217,348**Total**
            **5,352,286**
            **4,757,232**





Staffing
      revenues decreased 13% during the three months ended June 30, 2007 from the
      corresponding period in 2006.  This decrease in the 2007 period
      relative to the 2006 period was primarily attributable to the loss of two
      significant contracts earlier in the year.





Revenue
      from the Medical Services division increased 72% to $2,613,454 from $1,513,358
      in 2006.  The increase was driven by the following:


1.
            In
                late 2004, the Company launched its Pain Management
                business.  In the second quarter of 2007, the Pain Management
                business generated $1,547,872 in revenue compared to $819,756 in
                2006 as
                the Company grew from five to nine clinics.  The Pain Management
                business, as discussed previously, is an opportunity for the Company
                to
                generate considerable growth.  It is a field of healthcare that
                is vastly under-serviced in Canada.  The Company recently opened
                its ninth clinic location and more sites are scheduled for
                2007.  Management believes that strong revenue growth will
                continue in the current fiscal year, though no assurance can be given
                that
                such growth will in fact be
                achieved.


2.
            During
                the first half of 2007, the Company increased its base of intravenous
                infusion clinics from 16 to 22.  The Infusion revenues increased
                to $1,065,582 from $693,602 in 2006, coincident with the increased
                number
                of infusion clinics.  The 53% increase in the Infusion business
                was driven by a 49% increase in infusions from 2,544 in the second
                quarter
                of 2006 to 3,796 in the same quarter of 2007 and higher average revenue
                per infusion.





Revenue
      from Healthcare Consulting was $217,348 for the second quarter of 2006 compared
      to $100,487 for the quarter ended June 30, 2007, a decrease of
      54%.  Contracts that the Company expected to sign, have been delayed
      and accordingly revenues decreased during the first quarter of the
      year





**GROSS
      MARGIN**





Gross
      margin (revenue less physician and other direct costs) increased to $1,656,546
      (18%) for the second quarter of 2007, from $1,339,418 for the same period in
      2006.





**Quarter
                Ended June 30,****Gross
                margin**
            **2007**
            **2006**Staffing
                Solutions
            428,003
            582,004Medical
                Services
            1,168,097
            667,164Healthcare
                Consulting
            60,446
            150,251**Total**
            **1,656,546**
            **1,399,419**





The
      Gross Margin from the Staffing business decreased to $428,003 from $582,004
      in
      2006.  The decrease of 27% was driven by the decrease in the number of
      contracts under management and by the loss of a particular contract that had
      a
      higher than average gross margin. There was a decrease in the gross margin
      percentage, 16.2% in 2007 versus 19.2% in 2006, because of the loss of
      the





23





aforementioned
      high margin contract and because the Company had a higher percentage of fixed
      fee contracts which resulted in a lower gross margin per contract.





The
      Gross Margin from Medical Services increased 75%, or approximately $500,000
      in
      the second quarter of 2007 compared to the same period in 2006.  As
      discussed above concerning revenue, this is attributable to (a) the growth
      of
      the Pain management business ($265,000); and (b) increased Infusion volumes
      ($185,000) and better margin per infusion ($50,000).





The
      Gross Margin from Consulting Services decreased 60% for the second quarter
      of
      2007 from $150,251 in 2006 to $60,446 in 2007.  The decrease is Gross
      Margin is attributable to decreased volume of activity in 2007.





**OPERATING
      EXPENSES**





Operating
      expenses are comprised of both direct and indirect operating
      expenses.  Direct expenses include those costs that are directly
      related to the operations of the business unit.  Indirect expenses
      include corporate overheads, which are allocated to the divisions, based on
      the
      gross margin earned by the division.





On
      an
      overall basis, operating expenses increased 42% to $1,699,173 for the second
      quarter of 2007 from $1,189,522 for the quarter ended June 30,
      2006.  The increase was largely attributable to increased costs
      associated with the Medical Services where costs increased $556,477, driven
      by
      increased business volumes.





On
      a
      divisional basis, after the allocation of corporate overheads, operating
      expenses were as follows:





**Quarter
                Ended June 30,****Operating
                expenses**
            **2007**
            **2006**Staffing
                Solutions
            379,822
            475,757Medical
                Services
            1,065,459
            508,982Healthcare
                Consulting
            253,892
            204,783**Total**
            **1,699,173**
            **1,189,522**





**AMORTIZATION
      AND INTEREST**





Amortization
      increased from $46,628 for the three months ended June 30, 2006 to $88,124
      for
      the same period in 2007.  During the fourth quarter of 2006 and the
      first half of 2007, the Company increased its capital spending on leasehold
      improvements and equipment associated with its Pain Management
      centers.  Consequently amortization costs increased in the second
      quarter of 2007 compared to the same period of the previous year.





For
      the
      three months ended June 30, 2007, the Company earned interest net of bank
      charges of $46,057, compared to $6,813 in the same period in
      2006.  When the Company completed its financing in July 2006, the cash
      on hand increased significantly and interest earned on the cash on hand
      increased accordingly.





Interest
      on long-term debt in the second quarter of 2007 increased from $14,449 in the
      second quarter of 2006 to $39,883.  The increase is associated with
      the interest charges attributed to the Series I Special Shares.  This
      is a non-cash expense.





24





**OTHER
      EXPENSES**





Stock-based
      compensation expenses were $nil for the second quarter of 2007 compared to
      $10,456 for the second quarter of 2006.  Stock compensation expenses
      arise when options or warrants, issued to employees or others,
      vest.  In 2006 the costs associated with the vesting of certain
      management options were expensed in the period.





Interest
      expense on the financial liability carried at amortized cost of $4,279 (2006
      -
      $nil) arises as a result of the Company adopting Handbook Section 3855,
“Financial Instruments - Recognition and Measurement”.  This is a non
      cash expense.





**INCOME
      TAXES**





For
      the
      three months ended June 30, 2007 and 2006, there was no provision for income
      taxes payable due to the large tax loss carry-forwards available from previous
      loss years.  The Company is liable for income taxes in accordance with
      Canadian federal and provincial income tax legislation. We do not expect to
      be
      liable for significant corporate income tax in Canada in the foreseeable future
      because we have significant net operating loss carry forwards for Canadian
      income tax purposes.




**DISCONTINUED
      OPERATIONS (GOVERNMENT HEALTHCARE SERVICES)**




**Family
      Medical Clinics**


For
      the
      three month period ended June 30, 2007 the Company reported a loss from its
      Family Medical Clinics of ($73,697) compared to a loss of ($48,488) in the
      same
      period in 2006.  The Company is in the process of disposing of all
      Family Medical Clinics.  The losses increased in the current fiscal
      quarter when one of the physicians at the Calgary clinic resigned, reducing
      the
      billings at the clinic.





**Government
      Health Services**


During
      the three month period ended June 30, 2007, the Company had income from
      Government Health Services (the “DND Contract”) of $9,328 compared to a loss of
      ($52,354) in the second quarter of 2006.  The costs incurred in the
      second quarter of 2006 relate to expenses incurred in attempting to recover
      amounts from Public Works and Government Services Canada
      (“PWGSC”).  The income earned in the second quarter of 2007 relates to
      interest earned on settlements negotiated with PWGSC.





**Six
      months ended June 30, 2007 compared to six months ended June 30,
      2006**





**REVENUE**





The
      Company's revenue from continuing operations for the six months ended June
      30,
      2007 was $10,423,436 compared to $9,040,702 for the six months ended June 30,
      2006.





The
      increase in revenue during the 2007 period over the comparable 2006 period
      of
      approximately 15% was attributable to an increase in Medical Services, while
      Staffing Solutions and Healthcare Consulting both reported decreased
      revenues.  Divisional revenues were:








**Six
                months Ended June 30,****Revenue**
            **2007**
            **2006**Staffing
                Solutions
            5,375,616
            5,687,083Medical
                Services
            4,698,656
            2,701,752Healthcare
                Consulting
            349,164
            651,867**Total**
            **10,423,436**
            **9,040,702**











25





Staffing
      revenues decreased 5% for the six months ended June 30, 2007 from
      2006.  This decrease was attributable to the loss of two contracts
      earlier in the year.





Revenue
      from the Medical Services division in the first six months of 2007 increased
      74%
      to $4,698,656 from $2,701,752 in 2006.  The increase was driven
      by.


1.
            In
                late 2004, the Company launched its Pain Management
                business.  For the first six months of 2007 the Pain Management
                business generated $2,728,214 in revenue compared to $1,447,040 in
                2006 as
                the Company grew from five to nine clinics.  The Pain Management
                business, as discussed previously, is an opportunity for the Company
                to
                generate considerable growth.  It is a field of healthcare that
                is vastly under serviced in Canada.  The Company has recently
                opened its ninth clinic location and more sites are scheduled for
                2007.  It is anticipated that strong revenue growth will
                continue in the current fiscal
                year.


2.
            The
                Infusion business increased to $1,970,242 from $1,254,712 in
                2006.  The 57% increase in the Infusion business was driven by a
                55% increase in infusions from 4,719 in the first six months of 2006
                to
                7,293 in the same period of 2007.





Revenue
      from Healthcare Consulting was $349,164 for the first six months of the year
      compared to $651,867 for the six months ended June 30, 2006, a decrease of
      47%.  Contracts that the Company expected to sign have been delayed
      and accordingly revenues decreased during the first quarter of the
      year.





**GROSS
      MARGIN**





Gross
      margin (revenue less physician and other direct costs) increased to $3,045,616
      (18%) for six month period ended June 30, 2007, from $2,574,168 for the same
      period in 2006.





**Six
                months Ended June 30,****Gross
                margin**
            **2007**
            **2006**Staffing
                Solutions
            830,995
            1,056,123Medical
                Services
            1,984,765
            1,115,917Healthcare
                Consulting
            229,856
            402,129**Total**
            **3,045,616**
            **2,574,169**





The
      Gross Margin from the Staffing business decreased to $830,995 from $1,056,122
      in
      2006.  The decrease of 22% was driven by the decrease in the number of
      contracts under management and by the loss of a particular contract that had
      a
      higher than average gross margin. There was a decrease in the gross margin
      percentage, 15.5% in 2007 versus 18.6% in 2006, because of the loss of the
      aforementioned high margin contract and because the Company had a higher
      percentage of fixed fee contracts which resulted in a lower gross margin per
      contract.





The
      Gross Margin from Medical Services increased 78%, or approximately $870,000
      for
      the first half of 2007 compared to the same period in 2006.  As
      discussed above concerning revenue, this is attributable to (a) the launch
      of
      the Pain management business ($430,000); and (b) increased Infusion volumes
      ($365,000) and better margin per infusion ($75,000).





The
      Gross Margin from Consulting Services decreased 43% for the first six months
      of
      2007 from $402,129 in 2006 to $229,856 in 2007.  The decrease is Gross
      Margin is attributable to decreased business activity in the first half of
      2007.





26





**OPERATING
      EXPENSES**





Operating
      expenses are comprised of both direct and indirect operating
      expenses.  Direct expenses include those costs that are directly
      related to the operations of the business unit.  Indirect expenses
      include corporate overheads, which are allocated to the divisions, based on
      the
      gross margin earned by the division.





On
      an
      overall basis, operating expenses increased 43% ($978,852) to $3,238,351 for
      the
      first half of 2007 from $2,258,499 for the same period in 2006.  The
      increase in expenses is largely attributable to increased costs associated
      with
      the Medical Services ($925,000).





On
      a
      divisional basis, after the allocation of corporate overheads, operating
      expenses were as follows:





**Six
                months Ended June 30,****Operating
                expenses**
            **2,007**
            **2,006**Staffing
                Solutions
            809,480
            810,259Medical
                Services
            1,961,105
            1,035,563Healthcare
                Consulting
            467,766
            412,677**Total**
            **3,238,351**
            **2,258,499**





**AMORTIZATION
      AND INTEREST**





Amortization
      increased from $86,934 for the six months ended June 30, 2006 to $141,823 for
      the same period in 2007.  During the fourth quarter of 2006 and the
      first half of 2007, the Company increased its capital spending on leasehold
      improvements and equipment associated with its Pain Management
      centers.  Consequently amortization costs increased in the second
      quarter of 2007 compared to the same period of the previous year.





For
      the
      six months ended June 30, 2007, the Company earned interest net of bank charges
      of $53,390, compared to $nil in the same period in 2006.  When the
      Company completed its financing in July 2006, the cash on hand increased
      significantly so that interest earned exceeded the bank charges
      incurred.





Interest
      on long-term debt for the six months ended June 30, 2007 increased from $14,449
      in 2006 to $68,980.  The increase of $54,531 is associated with the
      interest charges attributed to the Series I Special Shares.  This is a
      non-cash expense.





**OTHER
      EXPENSES**





Stock
      compensation expenses were $nil for the six month period ended June 30, 2007
      compared to $88,859 for the same period in 2006.  Stock compensation
      expenses arise when options or warrants, issued to employees or others,
      vest.  In 2006 the costs associated with the vesting of certain
      management options were expensed in the period as were the costs associated
      with
      the extension of 1,437,500 share purchase warrants.





Interest
      expense on the financial liability carried at amortized cost of $9,036 (2006
      -$nil) arises as a result of the Company adopting Handbook Section 3855,
“Financial Instruments - Recognition and Measurement”.  This is a non
      cash expense.





27





**INCOME
      TAXES**





For
      the
      six months ended June 30, 2007 and 2006, there was no provision for income
      taxes
      payable due to the large tax loss carry-forwards available from previous loss
      years.  The Company pays income taxes in accordance with Canadian
      federal and provincial income tax legislation. We do not expect to pay
      significant corporate income tax in Canada in the foreseeable future because
      we
      have significant net operating loss carry forwards for Canadian income tax
      purposes.




**DISCONTINUED
      OPERATIONS - GOVERNMENT HEALTHCARE SERVICES**




**Family
      Medical Clinics**


For
      the
      six month period ended June 30, 2007 the Company reported a loss from its Family
      Medical Clinics of ($125,208) compared to a loss of ($81,533) in the same period
      in 2006.  The Company is in the process of disposing of all Family
      Medical Clinics.  The losses increased in the current fiscal year when
      one of the physicians at the Calgary clinic resigned, reducing the billings
      at
      the clinic.





**Government
      Health Services**


During
      the six month period ended June 30, 2007, the Company had income from Government
      Health Services (the “DND Contract”) of $3,941 compared to income of $69,280 for
      the same period in 2006.  The costs in 2006 relate to expenses
      incurred in attempting to recover amounts from PWGSC.  The income
      earned in 2007 relates to interest earned on settlements negotiated with
      PWGSC.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      at
      June 30, 2007, the Company's cash position was $2,760,733 compared to $4,028,128
      at December 31, 2006.





The
      Company’s principal source of liquidity is its cash on hand and its cash flow
      from operations.  Historically we have incurred operating losses;
      however, in 2006 the Company reported cash flow from operations of approximately
      $736,000.  This arose when the Company received $1,800,000
      (Cdn$2,000,000) on the settlement of an outstanding lawsuit.  The
      Company’s working capital position (current assets minus current liabilities)
      decreased by approximately $1,014,000 in the six months of
      2007.  During this time, the Company continued its expansion of its
      Pain Management business, by opening four new Pain Management
      centers.  Capital expenditures in the first six months increased to
      approximately $760,000 from $95,000 in the first half of 2006.





The
      reduction in the cash position of ($1,267,395) in the first six months of 2007
      resulted from (a) a decrease of cash from operations of ($160,000); (b) changes
      to non-cash working capital items of ($480,000); (c) a ($35,000) change from
      discontinued operations, comprised of a loss of ($121,000) from discontinued
      operations and a $86,000 increase in working capital from discontinued
      operations; (d) ($851,000) used by the Company in investing activities with
      respect to the purchase of property, plant and equipment and deferred clinic
      set-up costs and (e) the repayment of notes payable of ($75,000). The
      strengthening of the Canadian dollar relative to the US dollar resulted in
      a
      positive foreign exchange impact of $336,000. The investing activities largely
      related to funds used for the acquisition of leasehold improvements at the
      Company’s Pain Management centers.





In
      the
      second quarter the Company implemented a cost reduction strategy.  It
      is expected that this initiative will yield annualized cost savings of up to
      $400,000 once it is fully implemented.





The
      Company believes that cash on hand is adequate to finance our working capital,
      capital expenditure, and other obligations for the foreseeable
      future.





28





**OFF
      BALANCE SHEET ARRANGEMENTS**





The
      Company is not a party to any off-balance sheet arrangements.





**ADOPTION
      OF ACCOUNTING POLICIES**





Effective
      January 1, 2007, the Company has adopted the Canadian Institute of Chartered
      Accountants (“CICA”) Handbook; Section 3855 “Financial Instruments - Recognition
      and Measurement”; Section 3865 “Hedges”; and Section 1530 “Comprehensive
      Income”. These accounting standards introduce new requirements for the
      recognition and measurement of financial instruments, the application of hedge
      accounting and the reporting of comprehensive income that are designed to
      harmonize Canadian accounting standards with US and International Financial
      Reporting Standards.





On
      January 1, 2007, the Company adopted the provisions of Financial Accounting
      Standards Board


(“FASB”)
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”),
      an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. The interpretation requires that the
      Company recognize the impact of a tax position in the financial statements
      if
      that position is more likely than not of being sustained on audit, based on
      the
      technical merits of the position. FIN 48 also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods and disclosure. In accordance with the provisions of FIN 48, any
      cumulative effect resulting from the change in accounting principle is to be
      recorded as an adjustment to the opening balance of deficit. The adoption of
      FIN
      48 did not result in a material impact on the Company’s financial position or
      results of operations.





For
      details of the specific accounting changes and related impacts, refer to Notes
      3
      and 9 in the unaudited interim consolidated financial statements.





**Recently
      Issued Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which
      is
      effective for fiscal years beginning after November 15, 2007 and for interim
      periods within those years. This statement defines fair value, establishes
      a
      framework for measuring fair value and expands the related disclosure
      requirements. The Company is currently evaluating the potential impact of this
      statement on its consolidated financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” This standard provides companies
      with an option to report selected financial assets and liabilities at fair
      value. The Standard’s objective is to reduce both complexity in accounting for
      financial instruments and the volatility in earnings caused by measuring related
      assets and liabilities differently. This standard also establishes presentation
      and disclosure requirements designed to facilitate comparisons between companies
      that choose different measurement attributes for similar types of assets and
      liabilities. This Statement is effective as of the beginning of an entity’s
      first fiscal year beginning after November 15, 2007. The Company is currently
      evaluating the potential impact of this statement on our consolidated financial
      statements.





**CRITICAL
      ACCOUNTING POLICIES AND ASSUMPTIONS**





The
      preparation of consolidated financial statements in conformity with Canadian
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent liabilities during the reporting
      period.  Significant areas requiring the use of estimates relate
      to:  1) the reported amounts of revenues and expenses, 2) the
      assessment of collection risk associated with accounts receivable, 3) the
      disclosure of contingent liabilities, and 4) reporting for income taxes. We
      evaluate our estimates on an on-going basis.





29





We
      state our accounting policies in the notes to the audited consolidated financial
      statements and related notes for the year ended December 31, 2006. These
      estimates are based on information that is currently available to us and on
      various other assumptions that we believe to be reasonable under the
      circumstances.  Actual results could vary from those estimates under
      different assumptions or conditions.  We believe that the following
      critical accounting policies affect the more significant judgments and estimates
      used in the preparation of our consolidated financial statements:





•
            We
                maintain accruals for revenues, physician fees and other direct costs,
                salaries, benefits, and other costs.  Major accruals, revenues
                and expenses, relate to the accrual of revenue and expenses associated
                with staffing contracts.  These accruals are of a short
                duration; that is, revenues and expenses are generally known before
                financial statements are finalized.  Based on historical
                experience our accruals have proven accurate.  Should changes
                occur in the future, we may be required to revise our accrual
                assumptions.


•
            We
                maintain an allowance for doubtful accounts for estimated losses
                resulting
                from fraudulent claims made by patients, the inability of our corporate
                customers to make required payments, or as a result of a dispute
                in the
                invoiced amount.  Fraudulent claims arise when patients seek
                medical care and provide an invalid health card for
                payment.  The introduction of electronic medical records
                services, which pre-screen patients prior to services being rendered,
                is
                rapidly diminishing our exposure to fraudulent claims by
                patients.  We determine the adequacy of our bad debt allowance
                by continually evaluating individual customer receivables, considering
                the
                customer’s financial condition, credit history and current economic and
                business conditions. If the financial condition of our customers
                were to
                deteriorate, resulting in an impairment of their ability to make
                payments,
                additional allowances may be required. Historically losses on
                uncollectible accounts have not exceeded our allowances. As of December
                31, 2006, our allowance for doubtful accounts was $23,203 (2005 -
                $17,836).


•
            We
                are subject to various claims and legal actions in the ordinary course
                of
                our business. These matters include breach of contract or similar
                matters
                arising from contractual disputes. Our hospital and healthcare facility
                clients may also become subject to claims, governmental inquiries
                and
                investigations and legal actions to which we may become a party relating
                to services provided by our professionals. From time to time, and
                depending upon the particular facts and circumstances, we may be
                subject
                to indemnification obligations under our contracts with our hospital
                and
                healthcare facility clients relating to these matters.  Material
                pending legal proceedings brought against the Company are described
                in
                Note 10 of the financial statements included with this quarterly
                report on
                Form 10-Q. As mentioned, we are unable to determine our potential
                exposure
                regarding these lawsuits at this time.  Similarly, we have other
                contingent liabilities that pertain to amounts potentially owing
                to
                government authorities.  We continue to evaluate the probability
                of an adverse outcome and will provide accruals for such contingencies
                as
                required. We are currently not aware of any other such pending or
                threatened litigation or similar contingency that we believe is reasonably
                likely to have a material adverse effect on us. If we become aware
                of such
                claims against us, we will evaluate the probability of an adverse
                outcome
                and provide accruals, as required, at that
                time.


•
            The
                Company is required to estimate the amount of tax payable for the
                current
                year and the future income tax assets and liabilities recorded in
                the
                financial statements accounts for future tax consequences of events
                that
                have been reflected in its financial statements.  Significant
                management judgment is required to assess the timing and probability
                of
                the ultimate tax impact.  The Company records valuation
                allowances on future tax assets to reflect the expected realizable
                future
                tax benefits.  Actual income taxes could vary from these
                estimates due to future changes in income tax law, changes in the
                jurisdictions in which the Company operates, the inability to generate
                sufficient future taxable income or unpredicted results from potential
                examinations or determinations of each year’s liability by the taxing
                authorities.  Valuation allowances primarily relate to potential
                future tax assets arising from accounting amortization claimed in
                excess
                of tax depreciation and tax losses carried forward.  Management
                must assess both positive and negative evidence when determining
                whether
                it is more likely than not that future tax assets will be recoverable
                in
                future periods.  Based on this assessment, a valuation allowance
                must be established where management has determined, based on current
                facts and reasonable





30





assumptions,
      that such future tax assets will not likely be realized by the
      Company.  Realization is based on the Company’s ability to generate
      sufficient future taxable income.  The Company intends to maintain a
      valuation allowance against its future tax assets until sufficient positive
      evidence exists to support its reversal.  Changes in material
      assumptions can occur from period to period due to the aging of prior year’s
      losses, the cumulative effect of current period taxable income and other sources
      of positive and negative evidence.  If these changes in material
      assumptions were to provide sufficient positive evidence, the Company could
      record the net benefit of $3.1 million associated with non-capital loss
      carryforwards and tax pools of $9.2 million, or a portion thereof, as a recovery
      of income taxes in the period when realization becomes more likely than not
      and
      a corresponding increase in net future income tax assets.


•
            The
                Company is required to make certain assumptions in determining the
                value
                of stock based compensation. Management has applied the Black Scholes
                model for determining the value of stock based
                compensation.  Inherent in the application of the Black Scholes
                model are certain assumptions with respect to the future payment
                of
                dividends, the risk free rate of return and volatility of the
                stock.  Based on these assumptions a charge to income is
                incurred when these instruments vest.  Actual experience could
                vary materially from the assumptions made by
                management.





The
      Company believes that the above standards would not have a material impact
      on
      its financial position, results of operations or cash flows as it relates to
      the
      reconciliation of Canadian and United States accounting policy
      differences**.**





ITEM
      3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





There
      are no financial instruments that are sensitive to changes in interest rates
      or
      exposed to foreign currency exchange gains/losses.





ITEM
      4: CONTROLS AND PROCEDURES





Evaluation
      of Disclosure Controls and Procedures: Our management with the participation
      of our principal executive officer and principal financial officer has evaluated
      the effectiveness of our disclosure controls and procedures (as such term is
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”) pursuant to Rule 13a-15c under the
      Exchange Act as of the end of the period covered by this Annual Report on Form
      10-K.





We
      have
      undertaken significant efforts to establish a framework to improve internal
      controls over financial reporting.  We committed considerable resources to
      design, implement and document our internal controls. In performing the
      assessment, our management believes that these efforts have improved our
      internal controls over financial reporting; however, management has identified
      one material weakness in internal control over financial reporting existing
      as
      of December 31, 2006.  Management determined that our access controls over
      our financial application system did not operate to segregate incompatible
      duties.  This lack of segregation was not compensated effectively with
      other compensating, detective controls. This deficiency was evaluated as
      representing a more than remote likelihood that a misstatement that is more
      than
      inconsequential, but less than material, could occur. The control deficiency
      could result in a misstatement to the financial statement accounts, resulting
      in
      a material misstatement to annual or interim consolidated financial statements
      that would not be prevented or detected by our internal control over financial
      reporting.  As a result, management concluded that a material weakness
      exists and thus we are not able to conclude that our internal control over
      financial reporting  and disclosure controls were effective as of the
      end of the period covered by our Annual Report on Form 10-K.  However, this
      weakness in our internal control over financial reporting did not result in
      any
      adjustments nor did it result in any material misstatement of our 2006 annual
      or
      interim consolidated financial statements.  Management has initiated
      steps to segregate the incompatible duties in question.





31





Changes
      in Internal Control over Financial Reporting: There was no change in our
      internal control over financial reporting (as defined in Rules 13a-15(f) and
      15d-15(f) under the Exchange Act) that occurred during the period covered by
      this Annual Report on Form 10-Q that has materially affected, or is reasonably
      likely to materially affect our internal control over financial
      reporting.








**PART
      II:  OTHER INFORMATION**





ITEM
      1A.  RISK FACTORS





There
        have been no material changes in our risk factors from those disclosed in
        our
        2006 Annual Report on Form 10-K.





ITEM
      6. EXHIBITS





Exhibit
      31.1   Rule 13a-14(a)/15d-14(a) Certification of the Chief
      Executive Officer of the Company.


Exhibit
      31.2   Rule 13a-14(a)/15d-14(a) Certification of the Chief
      Financial Officer of the Company.


Exhibit
        32.1   Section 1350 Certification of Chief Executive
        Officer


Exhibit
      32.2   Section 1350 Certification of Chief Financial
      Officer.








32





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.





MED-EMERG
                INTERNATIONAL INC.(Registrant)Principal
                Executive OfficerBy:
            /s/
                Dr. Ramesh ZachariasRamesh
                ZachariasChief
                Executive OfficerDate:
                  August 14, 2007Principal
                Financial and Accounting Officer:By:
            /s/
                William DanisWilliam
                DanisChief
                Financial OfficerDate:
                  August 14, 2007







33